Tuesday, July 27, 2010

There's less money in the cupboard. Now go for it.

Finance and Treasury fire the starting gun

Australia's budget is shrinking, even as our politicians come up with new ways to spend it.

The official Pre-election Economic & Fiscal Outlook - released yesterday in accordance with the Charter of Budget Honesty - shows government finances down half a billion on the economic update released just 12 days earlier.

Only $40 million of the $568 shortfall is due to extra spending decisions. All of the rest is due to updated information about revenue and expenditure, both moving in the wrong direction.

Although the changes are small in the context of the four-year projection period, in an election where promises are being costed in tens of millions rather than the more traditional hundreds, they they will significantly limit the room each side has to move.

Lower than expected revenue from income tax and Goods and Services Tax in 2009-10 has sliced $1.2 billion from the forward estimates out to 2013-14. Partly offsetting that is an unexpected $717 million bonus from a Reserve Bank decision to resume paying dividends one year earlier than had been planned...

Lifting spending in the forward estimates period are some road programs not completed in 2009-10 and a revised estimate of the expense of the childcare rebate.

The economic forecasts underlying the projections are unchanged.

In all but one of the next four years the budget outcomes are worse, although in 2012-13 the projected budget surplus is slightly higher - $3.5 billion instead of $3.1 billion.

Coalition finance spokesman Andrew Robb dismissed the improvement saying in his view the Gillard government would never deliver a surplus.

"The assumptions are questionable and very optimistic," he said. "We can't see a leopard changing its spots."

He pledged to use the $394 million Labor had allocated to its "cash for clunkers" program, to help pay-off government debt.

Mr Swan said the figures were prepared independently of the government in accordance with the Charter of Budget Honesty and that he hadn't seen the document ahead of its release.

Separate Australian Bureau of Statistics figures on producer prices make it a line ball call as to whether tomorrow's consumer price index will be high enough to trigger a Reserve Bank interest rate rise.

The mid point of estimates is now for an annual underlying inflation rate of 3 per cent, about the level the Reserve Bank regards as its "line in the sand" beyond which it will push up rates when it meets a week from today.

Pricing figures released by Coles suggest the quarterly inflation will be low. It reports deflation in its prices over the past six months, driven by lower fresh food prices and cuts in the price of its home brand products.

It says its food and liquor prices slid 1.4 per cent in the June quarter despite the increase in tobacco tax.

Published in today's SMH and Age

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